HP calls a mulligan, decides to keep its PC division

Back in August, HP announced it was looking to spin off its faltering PC hardware business. Now the company has made a commitment to keep that division after all. How will HP compete with other manufacturers?

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    Hewlett-Packard named former eBay head Meg Whitman (pictured here in a 2010 file photo) as its new president and CEO, replacing unpopular leader Léo Apotheker at the helm of the largest US technology company. This makes the fourth HP CEO since 2005, a troubling record of CEO change.
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It looks like Hewlett-Packard is going to stay in the PC game after all. The company announced in a press release this week that it would be keeping its PC division, reversing an August announcement in which it said it was planning to go all in on services and business support.

Why the sudden about-face? To put it in perspective, let’s briefly revisit that initial August decision. The announcement that the company would try to spin off its PC division, including smart phones and tablets, was made just before then-CEO Leo Apotheker’s departure and the arrival of new chief Meg Whitman. The announcement, which also killed off the development of the company’s webOS hardware, stemmed from HP’s struggles in the hardware industry, especially as its smartphones and (now-discontinued) Touchpad tablet struggled to gain traction.

At the time, the decision made a lot of sense: hardware manufacture wasn’t very profitable for HP, and popular tablets such as Apple’s iPad didn’t just take away from Touchpad sales – they also lured away potential laptop and desktop customers. But the PC unit was still very closely intertwined with HP’s overall structure, so Apotheker (in one of his last decisions as CEO) ordered a close review of the proposed spinoff.

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Now, two months later, that review has concluded that separating the businesses would cost HP about $1.5 billion in costs such as building new IT systems, creating new sales and support networks, and meeting other startup costs. And HP would lose the scale of its supply chain, which could hurt its other units. Basically, the PC division is just too closely intertwined with HP to make a spinoff viable.

What’s the company’s next step, now that it’s decided to maintain its PC division? PCs are still a pretty low-margin business, and HP will have to find ways to design and build units more efficiently as well as assuring customers that it’s not going to walk out from them (again). It also faces stiff competition from Dell and Lenovo, both of which profited when customers hesitated to pick up HP machines in the wake of the latter’s August announcement.

HP will also have to think about its plans for making smartphones and tablets, now that the Touchpad has been spiked. Whitman confirmed today that the company will indeed get into the tablet market again. But webOS’s precarious position as a mobile operating system could make that tricky. HP might decide to focus more resources on webOS development. Alternatively, as Larry Dignan speculates over at ZDNet, HP might partner with Google to make an Android tablet, or with Microsoft to make a Windows 8 tablet.

Whatever happens, current owners of HP machines can breathe a little easier – the company has made it clear that it’s committed to staying in the PC business. Readers, what do you think of this announcement? And what do you think of HP’s machines? Let us know in the comments.

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